Student Finance Dilemma

9

Well, I applied for student finance and it got approved, however, I did this thinking my parents knew about the interest rate, which was stupid of me. I knew of an interest rate but*didn't do thorough research with the rate being 9% for plan 5. Though we live in London, we are still considered a low-income family so when they saw 9% they were in disbelief, plus I will be the first one going to uni and I still have 2 younger siblings, they naturally became concerned. SFE is intended to offer financial support for those not-so-wealthy families, hoping that they would use this support to get those qualifications and get a good job to pay off these loans, that was what I was thinking. But my parents said with the 9% and how I maxed everything, it would 'take me years to pay off'. What options are there for me? e.g. cancel sfe or only do it for the 1st year

Reply 1

pwp1014

OP

9

We have concluded just doing it for the 1st year, as they are afraid that the loan I have to pay off might build up and affect my financial situation in the future.

Reply 2

normaw

Volunteer Section Leader, Clearing and Applications Advisor

19

Original post by pwp1014

Well, I applied for student finance and it got approved, however, I did this thinking my parents knew about the interest rate, which was stupid of me. I knew of an interest rate but*didn't do thorough research with the rate being 9% for plan 5. Though we live in London, we are still considered a low-income family so when they saw 9% they were in disbelief, plus I will be the first one going to uni and I still have 2 younger siblings, they naturally became concerned. SFE is intended to offer financial support for those not-so-wealthy families, hoping that they would use this support to get those qualifications and get a good job to pay off these loans, that was what I was thinking. But my parents said with the 9% and how I maxed everything, it would 'take me years to pay off'. What options are there for me? e.g. cancel sfe or only do it for the 1st year

The interest rate charged for plan 5 is usually the Retail Price Index and currently it is capped at 7.8% (https://www.gov.uk/guidance/how-interest-is-calculated-plan-5). Whether or not you will pay off your loan will depend on what you earn for the next 40 years. Student loans do not work like regular loans. You start making repayments from the April following graduation if you earn above the repayment threshold of £25,000 per year. You pay 9% of anything you earn above the threshold and this continues for 40 years or until the loan is paid off - whichever comes first. If you earn less then £25k, you won't repay anything. If you earn above the threshold but still a relatively low salary, it is likely that you would make payments for 40 years and then the outstanding loan and interest would be wiped. If you are a very high earner, you could pay off your full loan very quickly.

Have a read through the following article by Martin Lewis on the MSE website and get your parents to read it too:

https://www.moneysavingexpert.com/students/student-loans-england-plan-5/

Student Finance Dilemma

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